Problems of Family Managed Business in Today-1

8/2/2019 Problems of Family Managed Business in Today-1

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Problems of Family Managed

Business in todays competitive

scenario


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Introduction Family businesses are a major force in

today's global marketplace.

Today, family-owned companies

account for more than two-thirds of allbusinesses in the world,

They are becoming more, not less,prevalent.

In most industries around the globe,family companies are among the mostvibrant competitors


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Introduction

Family-owned companies often haveenviable strengths like

Long-term relationshipsA reputation for quality work

Aggressive reinvestment

High stakeholder loyaltyHigh entrepreneurial instinct


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IntroductionBUT

Fewer than 15 percent of family-owned

businesses survive under family controlbeyond the third generation

Only5 percent continue to create

shareholder value beyond the thirdgeneration


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Introduction

WHY? Tradition bound Nepotism not merit based Caught up in internal politics Hindered by family conflicts. Adjustment of professionals to the family &

family members to the professionals

This is complicated by globalisationcompetition Increasing aspirations due to the new

economy


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Introduction

WHY?

Managing business is tough

Managing family is equally tough Managing generation is tougher

Managing ALL TOGETHER is the

toughest


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Introduction

Empirical Studies have established that

Founder Generation - Entrepreneurial - builds

Sons Generation - Managing - preserves

Cousin Generation - Fighting &Enjoying, Distant from

founders vision - squanders


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Introduction

THE QUESTION IS :

IS THERE A WAYOUT?


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Introduction

Managing business is tough

Managing family is equally tough Managing generation is tougher

Managing ALL TOGETHER is the

toughest


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RECIPE FOR SURVIVAL &

SUCCESSLet us see how successful families world

wide have managed growth overgenerations, war ,recession, boom,

political uncertainties and highly

competitive environment


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SUCCESS strong governance

a powerful commitment to values passeddown through the generations and

a keen awareness of what ownership

means.


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SUCCESSWHAT OWNERSHIP MEANS:

the powerto destroy

as well asto shape


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SUCCESS:

WHAT SHAPING UP MEANS:

Recognition of this danger

established systems of checks and

balances

Process for carrying out the familys

roles in the three vital dimensions of

governance


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SUCCESS:

WHAT 3 VITAL DIMENSIONSMEAN:

OwnershipFamily governance and

managing family in business

board supervision, and

management.


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Family

Constitution- Vision and Purpose

- Values- Policies

Organisation

Communication


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Family Constitution

Long Term vision

Goal

- Sectors

- Growth

- Intentions

- Value systems (Ethics, Area of business,Merit over family, Behaviour pattern )


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Family Constitution

Policies

- Financial (for the family from the business i.e defining the

income streams and cash flow streams)

- Financial Risks and ring fencing

- Controlling stake and dilution

- Family Members exit and entries in investment, supervision,

management, operations

- Successions

- Penalties for exits so that exit becomes unattractive and

family remains united during crisis and happier times due to

disinterest and non interest

-protectionLegal, financial, taxation & Family


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Family Constitution

Organisation

- Family meetings

- Family Council

- Shareholder Council

- Representation in Board of Directors


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Family Constitution

Communication Business

Ownership Family issues

Direction

Regulations between business and family and

vice-versa. CEO Presentation


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OwnershipBusiness Interface

(Shareholders- Board of DirectorsManagement)

Board Management

Family Members involvement in Business

Merit based NOT Birth based Broad Business Strategy

Diversification

Financial Policies

Long Term Focus

Keeping the Family Happy


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(Board Management) Board Composition

outside directors.

Number of External Directors Background

Qualification for Family Directors

Proven competence

Started work outside the family business

Enter after graduation and work their way up.


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(Board Management) Qualification for Family Directors

Annual evaluation by competent outsiders reporting directly to

the board.

Two-year process of outside evaluation and coaching before a

board committee appoints him to the position.

ProfessionalisationMerit based family induction, code of conduct

Corporate Governance Practices


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Broad Business StrategyDiversification WHY?

Steady profitability and survival over shifting business cycles Provide shareholders a diversified Portfolio so as to retain their

money.

Provides an ability to react quickly to opportunities

HOW? Focus on two to four main sectors.

Complement a group of core businesses with venture capitaland private equity arms in which they invest 10 to 20 percent oftheir equity

A mix ofbusinesses with high risks and returns and businesses that

have more stable cash flow.

asset-light businesses, asset-intensive businesses and Nichebusinesses

Maintain a good mix of investments by shifting gradually frommature to growth sectors


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Broad Business Strategy

Financial Policy

risk-averse portfolio

pay lower dividends

debt targets are conservative

guaranteeing the debt of their subsidiaries


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Broad Business StrategyLong-term-performance focus

strong performance culture combined with

quantitative targets for growth and returns

returns 25 percent above the relevant stock market index

The minimum period mentioned was 5 years

Economic cycles are a fact of life for family-owned

businesses that have a very long past and anticipatean even longer future


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Keeping the family happy

Pooled and professionally managed fortune stands a

better chance of survival

Private ownership serves as an incentive for families

to stay with companies

Generational liquidity events

To provide services to its members. others may be

equally importantfor example, tax services,educational advice for new generations, and even

concierge services.


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BenefitsWealth AccretionHigher

premium for investments


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Survival despite globalisation


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Survival despite globalisation

During the 1990s, local ownership fell by

27 percent in Brazil;

Fell by 24 percent in Colombia; and

Fell by 54 percent from 100 percent in

Mexico


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Greater competitive strength

Better funding through access to

demanding and sophisticated capital

market

Avoidance of fear of take over

Professionalisation leading to greater

competitiveness


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Flip Side

Process: Easy to describe difficult to

practice

Can be a problem if it is not a guided

process backed by strong commitment

from family

Can lead to defocuss if not combined

with business strategy


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Conclusion

Family managed Companies should

commence the change process

in right earnest

- In a structured manner

- With timelines

- With family consensus

Documents

Problems of Family Managed Business in Today-1